RAITO KOGYO CO., LTD.

Domestic public works account for approximately 70% of the Group's business volume, resulting in a structure directly exposed to reductions in public works budgets by national and local governments. If budget cuts exceed generally anticipated levels, this could have a material impact on business performance and financial condition. As countermeasures, the Group is working to strengthen sales activities toward privately ordered construction projects and to diversify risk through expansion of overseas business.

Currently, order conditions are favorable, driven by redevelopment in major urban areas and disaster prevention/mitigation measures. However, over the medium to long term, the domestic construction market may trend toward contraction due to fiscal constraints and population decline, potentially intensifying the competitive environment. The emergence of competitors or new entrants with innovative technologies and construction methods, or excessive price competition, could affect business performance and financial condition. The Group is focusing on creating added value and expanding market share, but there is no guarantee that the anticipated results will be achieved.

The shortage of skilled construction workers due to the declining birthrate and aging population is a risk common to the industry as a whole, and could lead to a decline in production capacity and a sharp rise in labor unit costs. The Group is promoting the development of labor-saving technologies and initiatives to increase the number of new entrants into the workforce, but there is no guarantee that future labor shortages can be completely overcome. If the labor shortage becomes more severe, it could affect business performance and financial condition.

Under the medium-term management plan "Raito2027," the Group is actively pursuing direct business investments, including M&A, both domestically and overseas. However, there is no guarantee that the expected returns will be achieved, and there is a risk that contingent liabilities or unrecognized liabilities may come to light after an acquisition. In addition, if goodwill is recorded, impairment losses may become necessary due to deterioration in the acquired company's performance or other factors. While the Group strives to avoid risk through due diligence, it is difficult to completely eliminate such risks.

The Group conducts business in multiple countries, primarily the United States and Southeast Asia, and is exposed to unforeseen country risks arising from changes in the political, economic, and social conditions of each country. As the Group seeks to expand overseas business through both organic growth and M&A strategies, risk exposure increases in tandem with the expansion of business scale. If country risk materializes, it could affect business performance and financial condition.

Holders of national qualifications required for construction management and highly specialized personnel in the civil engineering and building construction fields are essential to business operations, but intensifying competition for talent may make it difficult to secure the necessary construction management personnel. Since acquiring qualifications requires a certain period of time, it is difficult to secure immediately effective personnel, and if excellent personnel leave the company, this could affect business performance and financial condition. The Group continues to work on securing and developing excellent personnel, but further intensification of the competitive environment is expected.

The Group operates a quality management system and conducts self-inspections during the construction process, but if a serious defect occurs, the Group could be subject to claims for damages. Issues with construction quality could also lead to a decline in corporate credibility, raising concerns about adverse effects on order-taking activities. Although the Group has established a thorough quality control system, it is difficult to completely eliminate this risk.

If a serious accident, such as an occupational accident or public disaster, occurs at a construction site, it could affect business performance and financial condition. The Group focuses on accident prevention activities such as formulating safety and health management plans, conducting safety education, and carrying out site patrols, but cannot completely eliminate the risk of accidents. Serious accidents also carry the risk of leading to a decline in social credibility and administrative sanctions.

The Group operates its business under a variety of legal regulations, including the Construction Business Act and the Building Standards Act. If new regulations are introduced or existing ones are revised, this could lead to increased compliance costs or constraints on business activities. There is also a risk of becoming involved in litigation related to business activities, and if an unfavorable ruling is handed down, this could result in the recording of provisions or the payment of damages. These legal risks could affect business performance and financial condition.

In the course of handling confidential information such as personal information and technical information, malware infections, external cyberattacks, or the loss or theft of information equipment could result in information leaks or business disruptions. If an information leak occurs, it could lead to a decline in social credibility, the occurrence of damages, and a decline in business performance. The Group is developing information security policies, implementing technical measures, providing training for officers and employees, and promoting audits and countermeasures based on the Cybersecurity Management Guidelines issued by the Ministry of Economy, Trade and Industry and IPA, thereby establishing a crisis management framework.